Report: Cities cut costs, raised taxes to offset slashed state funds

Jim Gehrz, Star TribuneOutside investors pounced on the Twin Cities metro last year, leading the acquisition and development of dozens of apartment buildings, commercial spaces and office towers, including some of the most iconic office towers on the downtown Minneapolis skyline. These non-local buyers, mostly hedge funds, institutional investors and wealthy individuals, have invested billions of dollars in these buildings. Experts say the trend is a reflection of the region’s strong economy, including a lower-than-average unemployment rate and the second-tightest rental markets in the nation.

After years of cutbacks, Minnesota’s cities are spending less than they were a decade ago, when inflation is factored in, the state auditor reported Wednesday.

The numbers are for 2012 and don’t reflect the big bump in state aid provided by legislators in 2013.

But Minnesota House Research reports that, though it did rise, per-capita aid to local governments for 2014 is still less, statewide, than it was in 2011: $115 vs. $122.

“The bump did help,” said Lena Gould, policy analyst for the League of Minnesota Cities, “but we’re still below the level we were at before, and expenses keep going up.”

The auditor’s analysis points to a big shift over 10 years from cities relying on “intergovernmental revenue,” such as state aid, and toward the property tax.

Adjusted for inflation, there was a “29 percent increase in property tax revenues, while intergovernmental revenues decreased 25 percent,” State Auditor Rebecca Otto reported — the result, among other things, of state aid being withdrawn amid the recession.

During that period, many layoffs occurred — for instance, cutting building inspectors when new construction collapsed. The result: “When adjusted for inflation, 2012 expenditure levels are below 2003 levels and decreased 16 percent over the ten-year period.”

Dane Smith, president of the progressive group Growth & Justice, said the analysis shows that “our cities have adapted to economic and political hardship,” adding: “Local government is not growing out of control, in fact, not growing at all.”

A measurement of state and local revenue as a percent of income, he said, is “near a 25-year low,” meaning the state can afford to spend more on priorities such as early childhood education and transportation.

The conservative group the Freedom Foundation, a frequent critic of local government spending, declined to comment but did happen to issue a statement asserting that “city, county, and township levies are up $67 million this year” despite the bump in aid that was supposed to offer relief.

Officials of those jurisdictions have said that there were many pending needs after years of austerity, including rehiring of inspectors.